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Last Updated:  Thursday, 6 March, 2003, 22:36 GMT
France busts deficit limit
Euro notes under an ultraviolet scanner
France's budget will be back under the microscope
France expects that its public finances will be out of balance by 3.4% this year, breaching the Eurozone's agreed maximum of 3% of gross domestic product.

The European Commission has immediately launched its procedures for dealing with countries which break the deficit rule.

The finance ministry in Paris said 2003 would leave France in breach of the European Union's Growth and Stability Pact, although it promised a return to a sub-3% deficit the year after.

The news was released shortly before a meeting of European finance ministers in Brussels, at which the question of European countries' deficits will be a hot topic.

The deficit is the likely result of a freeze on taxes for this year, although 1.4bn euros in expected spending is to be cancelled to take up some of the slack.

Earlier this year, the ministry had predicted a 2.6% shortfall for 2003. Just days ago it set last year's deficit at 3.04%.

Hard line?

The response from EU economic and monetary affairs commissioner Pedro Solbes was a decision to open the EU's excessive deficit procedure against France, based on the 2002 figure.

Brussels has previously said it would fine countries who broke the 3% limit, although many economists believe further budget cuts would hammer Europe's economy just when the global downturn is weakening demand to a dangerous degree.

Germany and Portugal have both broken the barrier in the past, each being reprimanded in the process.

But France's transgression is seen by some officials as particularly bad, since both Germany and Portugal did their best to ensure its finances were within the Pact's limits the year after a breach.

"Whenever we write a report on a country after the excessive deficit procedure has been triggered we always look also at the follow-up year" to the one in which the deficit breached the EU cap, one official told Reuters.

"It is one thing for a country like Portugal to have a deficit of more than 4% one year and then the next year a deficit of around 2.5%.

"But this (the French case) is something different."

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